Gas Natural Aprovisionamientos SDG S.A. v Methane Services Ltd

The claimant charterers (“charterers”) appeal under s.69 of the Arbitration Act 1996 against a “First Final Award” dated 28^th October 2008 ("the award") of Messrs. Christopher Moss, Michael Baker-Harber and Mark Hamsher (“the arbitrators”). The award dealt with disputes that had arisen between the charterers and the defendant disponent owners (“owners”) under a long term time charter dated 4 December 2001 (“the charter”) of a liquid natural gas (“LNG”) carrier, described in the charter as “the Vessel”.

The charter defined “Vessel” as “the LNG Tanker “KHANNUR” or a substitute LNG Tanker as provided in clause 59.” The terms of clause 59 call for examination in detail and it is set out in full below. A first substitution occurred in June 2004 after a dispute (“the 2004 dispute”) had arisen concerning drydocking of KHANNUR. The 2004 dispute was resolved by an agreement dated 2 June 2004 (“the 2004 agreement”) under which MT GIMI was substituted for KHANNUR. Relevant terms of the 2004 agreement also call for examination and are set out below.

Both KHANNUR and GIMI were and are owned by Golar Group (“Golar” or “head owners”). In relation to each vessel there was and remains in existence a long term time charter (“the head charter”) between Golar and owners, enabling owners to act as disponent owners for the purposes of the present charter.

Charterers and owners are subsidiaries of energy companies. Charterers are owned by a Spanish energy company (“Repsol”). Owners are owned by BG Group Plc (“BG”).

This appeal concerns the conclusions reached in the award as to the legal effect of events in 2007 which began when owners sought to re-substitute KHANNUR for GIMI. Those events included a period when GIMI ceased to be available to charterers, leading to an agreement on 12 July 2007 (“the 2007 agreement”) under which KHANNUR remained at Malta and was returned to owners there, while GIMI was returned to the charter service at El Ferrol in northern Spain “[as] from 14 July 2007, 0001 Spain local time …” .

The disputes referred to the arbitrators, and the reason why the award dealt with certain matters only, were dealt with in paragraphs 5 to 7 of the award:

5.

The disputes referred to us arose out of the Charterers’ claim for damages and/or restitution of overpaid hire for a period when the Owners had purported to place the mt. “KHANNUR” on hire under the charterparty in substitution for the mt. “GIMI” (the mt. “GIMI” having previously been substituted for the mt. “KHANNUR”). The Charterers maintained that they had no right under the charterparty to do so and therefore claimed hire which had been paid under the protest for the disputed period.

6.

The Owners denied that the Charterers were entitled to the sums claimed or any sum at all and counterclaimed hire allegedly outstanding, together with what they maintained were wrongful deductions from hire for bunkers remaining on board. Both parties claimed interest on their respective claims and counterclaims, together with costs.

7.

By agreement between the parties we were requested to determine the issues as issues of principle, leaving the parties to attempt to agree the financial consequences of those findings, but reserving our jurisdiction to determine these if that proved impossible.

The award made four declarations. For the purposes of this appeal I need refer only to two of them, which I shall refer to as “declaration (1)” and “declaration (2)”. They were expressed in the award in this way:

WE FIND, HOLD AND DECLARE

(1)

that the mt. “KHANNUR” was validly substituted into the charter at 13.00 hours on 5^th June 2007;

(2)

that the mt. “KHANNUR was on hire for the period from 5^th to 25^th June 2007, so that the deductions made by the Charterers in respect of hire and bunkers during this period were wrongfully made subject to any adjustment for re-positioning;

…

In the reasons accompanying the award (“the reasons”) paragraphs 52 to 54 set out background information as to why the award took this form:

52.

… the Charterers’ claim was for overpaid hire. This comprised two elements. The first was for hire for the “KHANNUR” for the period from midnight on 24^th June to 14^th July 2007 (this was in addition to the deduction from hire made by the Charterers for the period from 5^th to 24^th June). The second element represented hire allegedly overpaid for the “GIMI” from 00.01 hours on 14^th July 2007 to 6^th August 2007, less certain credits.

53.

So far as the Owners’ counterclaim was concerned, this had three heads. The first was for the hire deducted by the Charterers for the period from 5^th to 25^th June 2007 (amounting to US$1,237,740.97). The second was for a deduction of US$292,979.26 which the Charterers had made from the August hire payment for the “GIMI”. This was said to have been in respect of the “GIMI” bunkers for the period from 5^th June to 14^th July 2007. The third head was a claim for unpaid bunkers ROB on both the “GIMI” and the “KHANNUR” in June/ July 2007 amounting to US$259,976.00.

54.

Given the possible permutations so far as the figures were concerned, agreement was reached at the hearing that we would determine the issues of principle in a Declaratory Award leaving the parties to try to agree the financial consequences but reserving jurisdiction to determine them ourselves if they were unable to do so.

In the reasons three principal issues were identified and were designated A, B and C. For the purposes of this appeal I need refer only to what the reasons described as issues A and B. Paragraph 51 of the reasons recorded a measure of common ground between the parties, and set out the issues in this way:

51.

It was common ground that the following three issues were determinative of both the Charterers’ claim and the Owners’ counterclaim:-

A.

Was the “KHANNUR” validly substituted into the charter at 13:00 hrs on 5^th June 2007?

B.

If so, for what period between 5^th June and 14^th July 2007 was she on hire?

C.

When did the “GIMI” come on hire pursuant to the 12^th July Agreement?

There was a degree of overlap in the reasoning on issues A and B. It is convenient here to summarise the conclusion reached in the reasons on issues A and B, and certain sub-issues (to which I have given my own numbering).

I start with issue A: “Was KHANNUR validly substituted into the charter at 13.00 hrs on 5 June 2007?” A first sub-issue (which I have called sub-issue A1) was whether owners were correct in their primary case that under the terms of the 2004 agreement KHANNUR was validly substituted into the charter at 1300 hours on 5 June 2007. The outcome on sub-issue A1 was described in this way in paragraph 64 of the reasons:

64.

We concluded therefore that under the terms of the [2004 agreement] the Owners were entitled to substitute the “KHANNUR” (“to switch the ships back”) when they did on 5^th June and that, subject to positioning issues, she therefore came on hire at that time so that there was no need - for the purposes of determining validity of the substitution - to have regard to the terms of Clause 59 of the charterparty. …

There was a second sub-issue which I have called sub-issue A2. This was whether owners were correct in an alternative case that under the terms of cl 59(a) of the charter KHANNUR was validly substituted into the charter at 1300 hours on 5 June 2007. The passage from paragraph 64 of the reasons quoted above noted, in effect, that there was no need to turn to this sub-issue. Paragraph 64 continued, however, that since owners had advanced a positive case relying on Clause 59(a) it was clearly appropriate to deal with both parties’ respective arguments in relation to the charterparty substitution regime. The reasons then summarised the parties’ arguments, rejected an argument of principle advanced by charterers and continued at paragraph 82:

82.

Had it been necessary for them to do so, we were satisfied therefore that the Owners were in principle entitled to rely upon Clause 59 as the basis for their substitution of the “KHANNUR”. That meant that we next had to consider the various specific objections raised on behalf of the Charterers to the Owners’ reliance on Clause 59 …

The reasons then examined in turn the specific objections raised by charterers, and rejected each of them. The upshot thus was that owners would have succeeded on sub-issue A2 had it been necessary to do so.

Turning to issue B, this was slightly reformulated in a heading immediately before paragraph 111, and in that paragraph the charterers’ primary contention on issue B, sometimes described as “the positioning issue” or “the delivery issue”, was explained. I shall refer to as “sub-issue B1” the question whether charterers’ primary contention in this regard was correct. The heading and paragraph 111 were as follows:

B. If (as we have found) the “KHANNUR” was validly substituted, for what period between 5^th June and 14^th July 2007 was she on hire?

111.

Even if the Owners had the right to substitute the “GIMI”, the Charterers argued that having that right did not necessarily mean that it had been correctly exercised. They pointed to the fact that the Owners had committed themselves to delivering the “KHANNUR” “at Barcelona” (which was where the “GIMI” went off-hire) and yet had failed to do so. Whilst their reason for not doing so might have made practical and commercial sense, the Charterers submitted that they were unjustified in law. The fact that the Owners might have been prepared to give a credit for the extra distance of 329 nautical miles to Ras Laffan was neither here nor there. If the Charterers were correct in arguing that the “KHANNUR” had never been validly delivered, then it followed, so they argued, that their own entitlement (and, indeed, duty) to give orders to the vessel had never crystallised.

After a discussion of the arguments the reasons resolved issue B1 in favour of owners at paragraphs 118 and 119:

118.

… we accepted that Clause 59(d) had some relevance to this issue. Nevertheless, on a true construction it seemed to us that provided the substitute vessel was in all other respects in a position to provide the charter service, Clause 59(d) should be interpreted simply as a ‘formula’ to be applied in order to carry out the necessary accounting exercise so as to ensure that the Charterers were not financially disadvantaged by a substitution.

119.

The fact that the “KHANNUR” was not ordered to Barcelona was not therefore in our view a fatal objection to her delivery into service as a substitute vessel and it followed that the Charterers were under an obligation to give orders when she was tendered for delivery on 5^th June.

Charterers raised a further complaint under issue B, giving rise to what I describe as sub-issue B2. This concerned an assertion by charterers that they had, in fact, given orders to the Vessel on 26 June 2007 to proceed to Ras Laffan and that when owners ordered the vessel to Malta on 27 June 2007 she ceased to be on-hire. The reasons rejected charterers’ contentions on sub-issue B2. Following the substitution on 5 June 2007 KHANNUR waited at Algeciras for orders before proceeding towards Suez and then on 27 June 2007 to Malta. The message of 26 June 2007 relied upon by charterers was not an order from charterers to KHANNUR. In the absence of any voyage orders from charterers, KHANNUR remained on hire (paragraph 120).

In this appeal owners challenge the arbitrators’ conclusions on issue B. However the arbitrators’ reasoning on issue B involved reference to what they had said on issue A. For that reason it is necessary to examine passages in the reasons dealing with what I have called sub-issues A1 and A2.

Permission was granted for 3 questions of law to be raised on the appeal. Their precise formulation has varied. After minor factual correction, the parties agree on the wording of the questions for which permission to appeal has been given. They are:

1.

Can a shipowner under a charterparty with a provision such as clause 59(d) lawfully deliver a substitute vessel into time charter service when that substitute is not at the place where the previously chartered vessel went off hire or at an equivalent position so that the geographical position is irrelevant in law to her entering into service under the charter?

2.

Where there is a dispute about the validity of the delivery of a vessel into service under a charter is the charterer nonetheless obliged in law to give orders "without prejudice" to that dispute?

3.

If a charterer tells shipowners that the chartered vessel is to proceed to a named port and be ready to load by a given time, is that an order as to the employment of the vessel even if there is a dispute about which the chartered vessel is?

I set out relevant passages from the charter, the 2004 agreement and the reasons before turning to these three questions.

In addition to the definition mentioned earlier, the charter included the following (with agreed corrections to clause 59 set out in square brackets):

2.

Shipboard Personnel and their duties

(a)

…

(b)

Owners guarantee that throughout the Charter service the Master shall with the vessel’s officers and crew, unless otherwise ordered by Charterers:

(i)

prosecute all voyages with the utmost despatch;”

…

4.

Period/Trading Limits

(a)

Owners agree to let and Charterers agree to hire the Vessel commencing from the time and date of delivery of the Vessel to the Charterers, as provided in Clause 5, until redelivery as provided herein, for the sole purpose of carrying LNG in any part of the world, as Charterers shall direct, subject to the limits of the current British Institute Warranties and any subsequent amendments thereof.

(b)

…

(c)

Charterers shall use due diligence to ensure that the Vessel is only employed between and at safe places …

Subject to the foregoing, the Vessel shall be loaded and discharged at any places as Charterers may direct, …

…

(d)

Owners acknowledge Charterers’ intention to trade the Vessel, inter alia, to the ports and terminals set out in Schedule III hereof (hereinafter referred to as “Primary Terminals”) and Owners acknowledge the safety of the Primary Terminals as at the commencement of this Charter and warrant the ability of the vessel to comply as at the commencement of this Charter with all the requirements, physical or otherwise, of the Primary Terminals. …

5.

Delivery

(a)

The Vessel shall be delivered by Owners at a safe port and/or berth in Spain, immediately upon redelivery to Owners under the Vessel’s current Spain/Trinidad/Spain single trip time charter to Charterers. The Vessel’s cargo tanks at the date of delivery shall contain LNG heel and natural gas.

(b)

Charterers shall have the option of cancelling this Charter if the Vessel is not ready and at their disposal within thirty (30) days of the time specified under Clause 5(a).

…

8.

Rate of Hire

(a)

Subject as herein provided, the charter hire hereunder shall be sixty thousand United States Dollars (US$60,000) per day or pro-rata for any part of a day increasing annually as provided below and Charterers shall pay for the use and hire of the Vessel from the time and date of her delivery (GMT) until the time and date of her redelivery (GMT) to Owners.

…

12.

Instructions and Logs

(a)

All oral and written communications between Charterers and the Master shall be in English. Charterers shall from time to time give the Master all requisite instructions and sailing directions (which shall be in writing), and he shall keep a full and correct log of the voyage or voyages, which Charterers or their agents may inspect as reasonably required. …

…

20.

Loss of Vessel

Subject to provisions of Clause 59 should the Vessel be lost, hire shall cease at noon GMT on the day of her loss; should the Vessel be a constructive total loss, hire shall cease at noon GMT on the day in which the Vessel’s underwriters agree that the Vessel is a constructive total loss; should the Vessel be missing, hire shall cease at noon GMT on the day on which she was last heard of. Any hire paid in advance and not earned shall be returned to Charterers and Owners shall reimburse Charterers for the value of the estimated quantity of bunkers, diesel fuel and liquid nitrogen on board at the time of termination, at the price paid by Charterers at the port where the relevant item was taken on board.

21.

Off Hire

(a)

On each and every occasion that there is loss of time, whether by way of interruption in the Vessel’s service or, from reduction in the Vessel’s performance, or in any other manner other than as a result of periodical drydocking in respect of which Clause 22 shall apply:

(i)

due to default or deficiency of personnel (whether numerical or otherwise) or stores; repairs; gas-freeing for repairs; time in and waiting to enter drydock for repairs; breakdown (whether partial or total) of machinery, boilers or other parts of the Vessel or her equipment (including without limitation tank coating); overhaul, maintenance or survey, collision, stranding, accident or damage to the Vessel; or any other cause whatsoever preventing the full and efficient working of the Vessel and such loss of time (i) (if resulting in a continuous interruption to the Vessel’s service) extends for more than one hour during any period while the Vessel is in port or three hours while the Vessel is not in port. …

…

then without prejudice to Charterers’ rights under Clause 3 or to any other rights of Charterers hereunder or otherwise the Vessel shall be off-hire from the commencement of such loss of time until she is again ready and in an efficient state to resume her service from a position not less favourable to Charterers than that at which such loss of time commenced; provided, however, that any service given or distance made good by the Vessel whilst off-hire shall be taken into account in assessing the amount to be deducted from hire.

…

(c)

Further and without prejudice to the foregoing, in the event of the Vessel deviating (which expression includes without limitation putting back or putting into any port or port other than that to which she is bound under the instructions of Charterers) for any cause or purpose mentioned in Clause 21(a), the vessel shall be off-hire from the commencement of such deviation until the time when she is again ready and in an efficient state to resume her service from a position not less favourable to Charterers than that at which the deviation commenced, provided, however, that any service given or distance made good by the Vessel whilst so off-hire shall be taken into account in assessing the amount to be deducted from hire …

…

22.

Periodical Drydocking

…

(c)

The Vessel shall be off-hire from the time when she is released to proceed to the drydock port until she next presents for loading in accordance with Charterers’ instructions, provided, however, that (i) Charterers shall credit Owners with the time which would have been taken on passage to the next loading port at the service speed had the Vessel not proceeded to drydock and (ii) in the absence of any such instructions from Charterers, the Vessel shall be considered on-hire forthwith upon leaving drydock. All fuel consumed shall be paid for by Owners but Charterers shall credit Owners with the value of the fuel which would have been used on such notional passage calculated at the guaranteed daily consumption for the service speed . . .

…

59.

Substitution

(a)

If the vessel ceases, whether before or after delivery, to be available for service under this Charter, or shall otherwise be off hire, either in the circumstances described in Clause 20(a) [N.B. it was agreed that this was a typographical error and that it should have read “21(a)”] or for any reason, other than in accordance with Clause 3(a) hereof, and not arising from Owners’ wilful default, Owners shall have the option of substituting the vessel during the term of this Charter with another vessel, which shall include the “HILLI”, “GIMI” and the “GOLAR FREEZE” . . . and a newbuilding satisfying the relevant requirements, having a technical specification, performance capability and condition as applicable at the commencement of this Charter. Performance of this Charter by such substitute vessel shall be treated in every respect as performance by the Vessel.

(b)

Except in circumstances described in Clause 20 (a) [it was agreed that this should have read “Clause 20”] (where Owners shall give Charterers notice of their intention to substitute the Vessel within 14 days following such total loss), Owners shall give Charterers the earliest possible advance notice of their intention to provide a substitute vessel on a temporary basis. Provided, however, that if circumstances arise as set out in Clause 59(a) Charterers shall be entitled to serve notice on Owners requiring them to elect whether or not to make a substitution and Owners shall have 14 days in which to make such election (which shall contain a seven day laycan period for delivery of the Vessel to Charterers) failing which their right to make such substitution shall be lost. A substitute vessel nominated by Owners pursuant to this Clause 59 must be capable of entering services under this Charter within 3 months of nomination by Owners.

(c)

It is also agreed that, in the event that:-

(i)

The Vessel ceases, whether before or after delivery, to be available for service under this Charter or shall otherwise be off hire, and it is clear that such service will not be resumed for a period of 21 days or more, whether in the circumstances described in Clause 20(a) or for any other reason, (excluding periodical drydocking); and

(ii)

If at that time or within the six (6) month period thereafter any other vessel is made available to Owners pursuant to Owners’ right under their own time charter with the Head Owners Golar Khannur Inc to require Golar Khannur Inc (or any affiliate of Golar Khannur Inc) in certain circumstances to provide a substitute vessel having a technical specification and performance capability meeting the requirements of this Charter (any such vessel being know as the “Substitute Vessel”), the Owners shall, if required by Charterers, secure the use of such Substitute Vessel and shall substitute her for the Vessel upon the terms of this Charter until such time as the Vessel is capable of resuming the performance of this Charter, or the Substitute vessel ceases to be available to Owners under their Head Charter to Golar Khannur Inc.

(d)

The Substitute Vessel shall enter into service under this Charter when in the same position in relation to the next loading port, and in the same state of readiness (including with regard to the temperature of cargo tanks) that the Vessel was or would have been in.

…

SCHEDULE III

List of Primary Terminals

…

Ras Laffan LNG Terminal, Qatar

…

The terms of the 2004 agreement were recorded in an email which so far as material stated:

It is understood and agreed the following:

Upon completion discharge Barcelona and [dropping outward pilot] June 2 KHANNUR redelivers from Gas Natural [ie charterers] for its maintenance window. Once the ship is back on hire from the maintenance, the ship goes on hire BG [ie is withdrawn from service under the present charter] …

At the same time the KHANNUR goes on hire BG, the GIMI goes on hire [under the present charter] to Gas Nat [ie charterers] at a position no further from Suez than Barcelona. Gas Nat receives a hire credit equal to its 12.5 days hire, and the ship remains on hire to Gas Nat until BG [ie owners] decides, at its option, to switch the ships back, but only after the KHANNUR has undergone the next requisite drydocking.

An overview of events and the rival claims is given in paragraphs 1 to 13 of the reasons, from which I set out extracts:

1.

The Claimant in this arbitration, Gas Natural Aprovisionamientos SDG SA, is involved in the supply, distribution and sale of natural gas in Spain, Italy, France and Latin America. It is owned by the principal Spanish energy company, Repsol. Jointly with another Repsol company, it is involved in an LNG transportation company, Repsol-Gas Natural LNG (otherwise known as “Stream”) and in this capacity is a substantial international trader of LNG, as well as an operator of a fleet of LNG carrying vessels. For convenience we shall refer to the Claimant as “the Charterers”.

2.

The Respondent, Methane Services Ltd, is a wholly owned subsidiary of the BG Group Plc and is itself a leading player in the global energy – but more specifically LNG – market. In the documents in evidence in this arbitration it was frequently referred to as “BG”. We shall refer to it as “the Owners”. The Owners have an established trading relationship with the Golar Group (“Golar”), well-established owners and operators of LNG carrying vessels. This dispute concerned two LNG carrying vessels, the “GIMI” and the “KHANNUR”, both owned by the Golar Group, and both on long-term time charters to the Owners.

…

6.

… Following vetting by one of the Charterers’ suppliers, Qatargas, the “GIMI” was substituted into the charter from early June 2004. Not only are Qatargas operators of the terminal at Ras Laffan but they are suppliers to the Charterers under a long term FOB LNG sales agreement dated 21^st February 2001, which provides for a basic twelve cargoes per annum for the Charterers’ account, with the possibility of a thirteenth.

7.

The “KHANNUR” was drydocked in January and February 2005. Following her substitution under this charterparty by the “GIMI” both prior and subsequent to the drydocking the “KHANNUR” had been employed in one of the Charterers’ established trades to and from Trinidad.

8.

The “GIMI” had previously been drydocked in 2004 and it became necessary for her to undertake a periodical drydocking in 2007. As is usual in the LNG trade, the Charterers periodically planned and agreed Annual Delivery Programmes (“ADPs”) with their suppliers, including in this case Qatargas. Their case in this arbitration was that with the need for a June 2007 drydocking in mind, they had planned their 2007 liftings so as to have a lifting “void” between liftings scheduled for 18^th May and 8^th July in the Qatargas ADP for the period when they anticipated that the “GIMI” would be in drydock. However, although it had no effect on the contractual entitlement of the parties, part of the background to the dispute is that the Charterers neither ascertained the precise date and anticipated duration of the drydocking of the “GIMI” nor did they advise the Owners of the agreement of a lifting “void” in the Qatargas ADP prior to or at the time when it was agreed with Qatargas in early December 2006.

9.

The Charterers maintained that their assumption was that following the drydocking the “GIMI” would resume service under the charterparty, since she was a suitably vetted vessel for loading at Ras Laffan. However, their case was that without informing them in time to enable them to make appropriate adjustments under the Qatargas ADP, the Owners had decided to substitute a vessel for the “GIMI” during the drydocking period – the vessel being the “KHANNUR”. Although this was said to have been to ensure that there was continuous service by the Owners under the charterparty, the Charterers regarded this plan to substitute the “KHANNUR” in June 2007 as “singularly unwelcome” and not unconnected with the ‘soft’ state of the market for LNG vessels at the relevant time.

10.

Had the “KHANNUR” continued to be acceptable to the Ras Laffan port authority/Qatargas it seemed unlikely to us that this dispute would ever have arisen. However, despite the fact that the “KHANNUR” had traded regularly to Ras Laffan under the charterparty prior to her substitution by the “GIMI”, she was rejected for loading at Ras Laffan. It appeared that she was the first vessel put forward for approval for loading at Ras Laffan to be subjected to a new vetting regime. Vetting by Qatargas had previously been carried out by its own employees. However, with effect from an unknown date in the first half of 2007 Qatargas/the Ras Laffan Port Authority had contracted responsibility for vetting vessels intending to use Ras Laffan to IMT. IMT is well known as the Exxon/Mobil ship vetting company. Exxon/Mobil are shareholders in Qatargas.

11.

In circumstances which will be considered in greater detail shortly, it became clear that the “KHANNUR” would not be able to perform the lifting at Ras Laffan scheduled for 10^th July 2007. The Charterers maintained that not only did they not want the “KHANNUR” at the time of the purported substitution, but also that she was not ready or suitable for the intended service in any event because she was not acceptable to Qatargas/the Ras Laffan Port Authority. They also objected to the fact that when the Owners purported to place her on hire under the charterparty, she was not in an equivalent position to the position at which the “GIMI” had gone off-hire (at Barcelona) as required by the charterparty. Despite the Owners calling upon them to provide orders for the “KHANNUR”, they declined to do so, contending that they were not in a position to do so since she had never been ‘delivered’ in accordance with the terms of the charterparty. After remaining at Algeciras for a period, she proceeded towards Ras Laffan on the Owners’ instructions, although she was later diverted to Malta when it appeared that she would not be accepted to load at Ras Laffan.

12.

The impasse between the parties was resolved by an agreement concluded on 12^th July 2007 (“the 12^th July Agreement”) which provided for the “GIMI” to return into the Charterers’ service and for the outstanding disputes to be resolved in arbitration. The application of the 12^th July Agreement to the events which followed was one of the issues in the arbitration.

13.

The crucial issue in this arbitration was whether in June 2007 the Owners had the right to substitute the “KHANNUR” for the “GIMI”. The Charterers claimed hire, which they maintained had been overpaid in the sum of US$1,633,793.00. The Owners counterclaimed unpaid hire, unpaid bunkers ROB and what they maintained were wrongful deductions from hire in the total sum of US$1,790,696.10. …

The reasons in paragraphs 24 to 50 made observations on events from June 2005 to 14 July 2007 as follows:

24.

... after vetting by Qatargas on 8^th/9^th June 2004 the “GIMI” performed in the charter service and the “KHANNUR” was then drydocked in January and February 2005. However, in February 2005 an event occurred which proved to be the catalyst in the development of the problem as it emerged in 2007.

25.

This was the transfer of management by Golar to Barber Ship Management (“BSM”). Mr Rossing of Golar (who gave oral evidence at the hearing) referred to BSM as being, in Golar’s opinion, “the best managers for old, complicated vessels”. Following the change of management, the “GIMI” continued to trade to Ras Laffan under the charter, but although she was vetted on a six monthly basis by Repsol, she was not vetted further by either Qatargas or IMT after the initial inspection in June 2004.

26.

The next important development which contributed to the dispute occurred with the finalisation of the Annual Delivery Programme (“ADP”) for 2007 between the Charterers and Qatargas. Qatargas confirmed the ADP schedule in writing on 7^th December 2006 and the schedule contained a statement that the “GIMI” would drydock after the discharge in Spain on 2^nd June. The schedule went on to refer to the fact that she would be the performing vessel for the next lifting on 10^th July. The Charterers had requested a thirteenth cargo but Qatargas would not oblige and the schedule provided for only twelve cargoes. It was not disputed that the Charterers had not informed either Golar or the Owners of the terms of this ADP or the void period agreed with Qatargas for the “GIMI” drydocking. The ADP did not require the “GIMI” to perform each and every lifting; under their purchase contract Charterers merely had to nominate the performing vessel ninety days in advance (although there appears to have been some flexibility in the programming).

27.

Although Mr Jorge Zickermann of the Stream Technical and Operations department (and the person directly responsible for the technical management of the “GIMI” at the relevant time) was in regular contact with Golar (in particular) concerning operational and maintenance matters - and details of the work to be carried out at the drydocking was also discussed with the Owners - it was common ground that there was no discussion of the dates for that drydocking. Mr Zickermann’s evidence was that this was because “all parties had a common understanding that it would take place in June 2007.”

28.

However, on 23^rd January 2007 Mr Zickermann informed the technical manager of the Owners that “subject to confirmation” the Charterers had arranged a drydocking window in the liftings for the “GIMI” between 2^nd June and 10^th July. He requested “drydocking prospects as soon as possible”.

29.

At this point Dr Anita Odedra moved into the global LNG shipping department of the Owners as Manager for Chartering and Fleet Optimisation (working with Mr Nash) and became the key person on the Owners’ side in the negotiations. Her evidence was that the Owners’ view was that the Charterers’ proposed drydock window was very short and provided no realistic prospect of the “GIMI” being able to complete the drydocking and return to Ras Laffan in time for the next loading in the schedule. In her view “the only realistic prospect” for the Charterers to meet the schedule was to substitute a vessel for the “GIMI”. On 29^th January 2007 she duly sent a message to the main contact she had had until then within the Charterers’ organisation stating that she needed to schedule the forthcoming drydock of the “GIMI” with the Charterers’ commercial department. She concluded: “We plan to substitute the “KHANNUR” so that you will not lose a ship whilst the “GIMI” dry-docks.”

30.

Mr Zickermann’s response to this message (the following day) was limited to technical aspects and to asking for drydocking prospects to be advised as soon as possible and the plan or drydocking specification to be provided. He made no reference to the substitution.

31.

The next development of note occurred on 12^th February when Dr Odedra sent a further email to Mr Zickermann confirming that Golar were prepared to accept the “GIMI” for drydock after her discharge at Barcelona on 2^nd June. She went on to state:-

“Please note that MSL [Owners] plans to substitute the KHANNUR into this time charter. We will position the KHANNUR at Barcelona so you can take delivery of KHANNUR the same time that you redeliver GIMI to us.

Please get back to me if you have any questions.”

32.

At this point it was clear from internal correspondence that the question was raised in the Charterers’ organisation as to whether the Owners had the right to substitute a vessel and whether the Charterers needed a substitute vessel. These discussions culminated in Mr Zickermann sending an email to Dr Odedra on 26^th February in which he reminded her that the Charterers expected the “GIMI” would be “fully available for us after drydocking period at Ras Laffan on July 10^th 2007 to take her cargo.”. He went on to state:-

“We note that you are proposing to substitute KHANNUR for GIMI under this charter during the period of planned maintenance/drydocking. Please note that no substitution will be required as we have alternative arrangements with our suppliers.”

The rival positions of the parties giving rise to the potential dispute were now clear.

33.

Mr Zickermann then referred the position to the legal department at Stream. A discussion then took place between Mr Zickermann and Dr Odedra on 7^th March in which he made it clear that the Charterers did not consider that the Owners had a right to substitute a vessel. Dr Odedra referred to the earlier substitution in 2004 and both parties agreed to consider the position further. Dr Odedra reverted with an email explaining her view that at the last scheduled drydocking in June 2004, the Owners had substituted the “GIMI” for the “KHANNUR” and that the “KHANNUR” was now being returned to the charter, thereby ending the original substitution.

34.

According to Dr Odedra it was only on 16^th March that Mr Zickermann spelt out the position with the “void” in the ADP, stating that the Owners’ substitution placed the Charterers “in a precarious position in circumstances where the “KHANNUR” will not have any employment whatsoever during the entire time Charterers envisaged with their suppliers the “GIMI” will be out of service for periodical drydocking”. This was, according to Dr Odedra, the first time that she or anyone else in the Owners’ organisation was aware that the Charterers had negotiated a lifting void with Qatargas during the anticipated drydocking period for the “GIMI”. She emphasised that at no time prior to 7^th December 2006 had it been agreed either by the Owners or by Golar that the “GIMI” would drydock after the Barcelona discharge on 2^nd June 2007. She stated that she would have expected the Charterers to ask the Owners to provide information as to planned maintenance, vessel availability and possible substitutions before agreeing the ADP, but that despite the fact that there were many opportunities for them to have done so, no request had been made to the Owners or to Golar for this information.

35.

Dr Odedra’s evidence was that she did not fully understand the Charterers’ concerns about the “KHANNUR” being substituted in spite of the void in the ADP because in her view there were a number of options which they could have pursued which would have been of benefit to them – apart from having the “KHANNUR” available to lift the 10^th July cargo. However, the Charterers did not nominate the “KHANNUR” to Qatargas in accordance with the 90 day schedule as required under the sale contract or take any other steps to ensure that she was acceptable to Qatargas.

36.

Mr Trenas of the Charterers on 7^th May did send an email to the Owners stating that the Charterers did not object to the Owners’ intention to substitute the “GIMI” provided that the “KHANNUR” satisfied certain conditions. These were (a) that she satisfied the charterparty requirements in terms of technical specification, performance capabilities and conditions applicable at the commencement of the charterparty; (b) that the “KHANNUR” had - in full force and effect - Repsol vetting; (c) that the Charterers were allowed to carry out a survey to verify compliance with these conditions. However Mr Trenas made it clear that even on this basis the Charterers would only accept the “KHANNUR” ready for loading in Qatar on 10^th July (or approximately 15 days earlier in Barcelona) as opposed to the intended 2^nd June substitution date.

37.

It emerged that the reason for mentioning Repsol vetting was that Mr Zickermann - at least - considered that a vessel approved by Repsol vetting was likely to be acceptable to any of the other relevant vetting agencies. Repsol inspected the “KHANNUR” on 12^th May and gave her their approval on 22^nd May. In the meantime, on 18^th May, Mr Rossing of Golar had asked Qatargas whether the “KHANNUR” would be acceptable. The response, on 20^th May, was that they should arrange a full SIRE inspection through IMT and the report should be shared with them, Qatargas. IMT initially advised that the vessel was on “hold” and not eligible for inspection. However, IMT then agreed to lift that restriction. The vessel was inspected on behalf of IMT in Algeciras Bay on 3^rd June.

38.

The “GIMI” did not complete discharge at Barcelona until 13.00 hours local time on 5^th June and she was taken off-hire at that time. The Owners purported to substitute in the “KHANNUR” and maintained that she came on-hire at that time. The response from the Charterers was that the vessel had not been validly substituted and they reserved their rights. In the meantime the “GIMI” proceeded to El Ferrol for drydocking.

39.

Also on 5^th June, the Owners (by now through their solicitors) confirmed to the Charterers that the “KHANNUR” complied with the charter, had Repsol approval and was in the same state of readiness as the “GIMI”. They also confirmed that the Charterers would be given an opportunity to inspect the vessel.

40.

Mr Zickermann attended on board the “KHANNUR” at anchor off Gibraltar on 14^th June. He confirmed that her condition made her a satisfactory substitute for the “GIMI” – subject to the provision of a “Cartagena platform” (which was dealt with promptly). As was emphasised on behalf of the Owners, the “KHANNUR” at that stage had approvals from Repsol, BP and BG. However, the final ingredient in the dispute was added on 17^th June when the Owners were informed that the “KHANNUR” had not been accepted for loading by Qatargas. At this stage all they were told was that this was due to (1) poor vessel inspection results, (2) poor operator review rating and (3) a poor history of vessel performance. Mr Zickermann stated that he himself was surprised by the rejection.

41.

Mr Rossing’s evidence was that although some matters had been raised by the IMT inspection report for the “KHANNUR” (which he himself had received on 6^th June so that Golar could send their comments on the report to the SIRE database) none of the thirteen observations struck him as being of any significance. All the observations were rectified before the vessel left Gibraltar and he stated that Golar had received confirmation from IMT on 12^th June that the previous “hold” on the vessel had been lifted. It therefore came as a “complete surprise” to Mr Rossing to hear that Qatargas had rejected the vessel for loading.

42.

Not surprisingly, Mr Rossing considered it vital to find out as soon as possible why the “KHANNUR” had been rejected. He stated that doing so “proved to be an almost impossible task”. Any suggestion that the rejection had been based on a poor operator rating struck him as particularly surprising since BSM were operators of the “GIMI” as well as the “KHANNUR” and the “GIMI” had been trading to Ras Laffan without any problem on this account.

43.

Counsel for the Owners helpfully included in his closing submissions what was a largely uncontentious summary of what his clients had been able to establish regarding the rejection and we set out below in summary the points made:-

(i)

That without any forewarning to Golar or the Owners, Qatargas had introduced a new screening system with new requirements which had been outsourced to IMT;

(ii)

Even the Charterers - as Qatargas’s own contractual counter-party - had not been informed of this change of system or its implications;

(iii)

The “KHANNUR” was one of the first vessels (if not the first) to be subjected to this new screening procedure;

(iv)

Under the new systems there was no pre-approval but an assessment was made on a voyage by voyage basis;

(v)

That the real reason for the rejection was that IMT considered that BSM had not attained a sufficiently high score on its TMSA (Tanker Management Self-Assessment);

(vi)

Notwithstanding their conclusions, IMT failed to take any steps to investigate further and provide a detailed explanation (Mr Rossing’s evidence being that in such situations it is customary for the vetting authority to be specific in its criticisms).

(vii)

That despite the rejection of the “KHANNUR”, the “GIMI” remained acceptable to Qatargas notwithstanding the fact that BSM were also her managers and that her general condition (according to Mr Zickermann) was not as good as that of the “KHANNUR”.

44.

It was suggested on behalf of the Owners that what appeared to be a double standard could not be explained on the basis that because the “GIMI” was trading she did not need to be vetted, even if BSM’s score on the TMSA revealed a real and justifiable concern that their operation of the “KHANNUR” was in some sense unsatisfactory. If that was so, then surely – so they suggested - the same must apply to the “GIMI”. It was initially proposed that all those affected by this decision should meet in Qatar for discussions. However, it was subsequently agreed that a conference call would take place on 27^th June.

45.

The conference call involved Qatargas, IMT, the Charterers and Golar. It was as a result of this conference call that Mr Rossing stated that it had become clear to him that the problem was that BSM had not attained a sufficiently high score in the TMSA. An unfortunate feature of this discussion was that the Owners were not included. This was apparently the result of a misunderstanding which meant that once Dr Odedra had concluded that it would be impossible for anyone from the Owners’ organisation to physically attend at Qatar (when that was in prospect), they dropped out of the picture. According to Mr Rossing it became clear that there was no possibility of persuading Qatargas to reverse their decision in time for the “KHANNUR” to lift the 10^th July cargo. It was subsequently explained to Golar by IMT that the only way for BSM to raise its overall score was for it to request an office audit. Although BSM have requested such an audit, before IMT will agree to carrying one out Qatargas have to request that an audit take place. According to Mr Rossing they have not yet done so.

46.

In the meantime, following her purported delivery into service the “KHANNUR” remained at anchor at Algeciras (the Owners taking the view that on safety grounds it made no sense to send her to Barcelona when the anchorage at Algeciras was preferable). When it became clear (following the 27^th June conference call referred to below) that IMT was not prepared to reverse its decision, the Owners ordered the vessel (which they had earlier ordered to slow steam towards Ras Laffan) to divert to Malta and anchor at a safe anchorage.

47.

Notwithstanding the disappointing results of the previous discussions with IMT/Qatargas, the Charterers arranged a further meeting with Qatargas in Doha on 4^th July. Mr Zickermann invited Golar and BSM to attend but he wanted to be able to discuss with IMT the audit findings and Golar advised that in order for him to do so, it would be necessary to obtain the Owners’ consent. Dr Odedra’s evidence was that it was only at this late stage that she was made aware of the intended meeting but that since the Charterers had led her to believe that there was no prospect of the “KHANNUR” being permitted to load, it was not clear to her in any event what the purpose of the meeting was. Regardless of that, it was impossible for those based in the USA to get flights to Doha on the US 4^th July holiday.

48.

The suggestion that the Owners had refused to attend the meeting unless it was accepted that the “KHANNUR” had been validly substituted into the charter was apparently without foundation but caused significant bad feeling on their side. The Owners were informed that Qatargas had given a deadline for the Charterers to nominate an alternative vessel and, the shipments being on a ‘take it or pay’ basis, the Charterers were obviously in some difficulties. Mr Trenas, on behalf of the Charterers, asked the Owners to confirm whether it remained their position that the “KHANNUR” was the only vessel available to them under the charter.

49.

In the event the Charterers sought alternative tonnage and fixed “GOLAR WINTER” on 5^th July directly from Golar to lift the 10^th July cargo at Ras Laffan. They were subsequently critical of the fact that their attempt at the Doha meeting to get the “KHANNUR” accepted for loading on a one-off basis was in reality pointless because, unknown to them, the vessel had been ordered to Malta and thus would not have been able to make the 10^th July lifting in any event.

50.

The impasse was resolved by an agreement concluded on 12^th July 2007 – “the 12^th July Agreement”. This was reached without prejudice to the ongoing disputes and to the position taken by each of the parties in respect of the validity of the substitution and/or the consequences of Qatargas’s agreement.

What I have called sub-issue A1 was dealt with in the reasons at paragraphs 55 onwards. The essential reasoning is at paragraphs 61 to 64:

61.

It struck us as quite possible that when the dispute as to the Owners’ entitlement to substitute the “KHANNUR” flared up in 2007, both parties might (initially, at least) have overlooked the significance of the 2^nd June 2004 Agreement. However, if (as appeared to us to be the case) the meaning of terms used by experienced commercial parties (such as these) to express their agreement in relation to a particular situation is clear, then we do not think that it is permissible to have any particular regard to the consequences of that meaning. Only if the terms used by parties are ambiguous, is it permissible in our view to have regard to the well-established canon of construction that the more unreasonable the result of a particular construction is, the less likely it is that the parties can have intended it.

62.

The words used by the parties here struck us as being capable of a clear and unambiguous meaning and we saw some force in the submission made by Counsel for the Owners that the attempt on behalf of the Charterers to qualify (or “re-write”) the 2nd June Agreement was inconsistent with the express words used. As was also pointed out, the words used in the 2nd June Agreement reflected Clause 59(a) which provided that any of “KHANNUR’s” three sister vessels could be substituted – without requiring that they should have been recently drydocked or imposing any other terms.

63.

Turning then to the Charterers’ second, alternative case in relation to the 2nd June Agreement, we agreed with Counsel for the Owners that to the extent that this case depended on the evidence given by Mr Javier Saez, the Charterers’ business development manager, it was unsupportable, in that the meaning of the 2nd June Agreement was a matter for objective construction and that his own understanding of the terms of that Agreement was irrelevant.

64.

We concluded therefore that under the terms of the 2nd June Agreement the Owners were entitled to substitute the “KHANNUR” (“to switch the ships back”) when they did on 5^th June and that, subject to positioning issues, she therefore came on hire at that time …

What I have called sub-issue A2 was dealt with in the reasons at paragraphs 65 onwards. Charterers urged that on 3 independent grounds cl 59 did not apply. First, as a matter of construction cl 59 could not be relied on by owners at a time when owners’ obligations under cl 3 (including, as was the case here, to drydock) led to the unavailability of the vessel proposed to be substituted. Second, there had been a breach of cl 59(b) in that owners had not given the earliest possible advance notice of the substitution – this both debarred reliance on cl 59 and gave charterers a cause of action in damages. Third, there had been a breach of cl 59(d) in that KHANNUR was not in the same state of readiness as GIMI – in particular KHANNUR’s managers did not meet with the approval of IMT and she would not have had her tanks cooled down at the time of substitution. The reasons commented that this latter point overlooked that GIMI’s tanks would not have been cooled down either after her drydocking.

The reasons at paragraphs 71 to 81 rejected charterers’ first ground. They observed, among other things:

71.

Both as a matter of first impression and subsequent reflection it struck us that, notwithstanding the acknowledged ambiguities in Clause 59, the intention of the parties was that it was intended to cover all situations where it might be necessary to substitute a vessel in order maintain continuous performance - save where the vessel which had to come off-hire had had to do so as a result of a breach of the Owners’ maintenance obligations under Clause 3(a). We did not believe that the parties would have intended to distinguish between those situations where the need for the vessel to come off-hire was foreseen and planned (such as a routine drydocking) and those situations which were fortuitous, there being no reason in our view for them to do so given the underlying purpose of the charter (of which more below).

72.

The principal objection to the Charterers’ construction as we saw it was that the right to substitute would be extraordinarily limited. Whilst it might be argued that the entitlement to substitute was essentially for the benefit of the Owners (enabling them to continue to earn hire when they would otherwise not be able to do so) it seemed to us to be clear that continuous performance of the charter service was a mutually beneficial underlying objective of the charterparty. The charterparty was after all for worldwide trading and not limited to performing the Qatargas contract. Indeed there was evidence that the Charterers had used the “GIMI” for storage off Barcelona when it suited them, putting another vessel in to perform the Qatargas liftings. It was a striking feature of the Charterer’s case that they focused almost slavishly on “GIMI’s” performance of their Qatargas purchase contract and the planning thereof rather than of the charterparty as a whole. A telling pointer to the fact that the parties had intended Clause 59 to cover a routine drydocking was, so it seemed to us, the fact that Clause 59(c) provided for a further right so far as the Charterers were concerned if the vessel was unavailable for service for more than 21 days – that being the accepted normal duration of a drydocking under this charter. As Counsel for the Owners emphasised, if Clause 59 did not apply to period drydockings, why did Clause 59(c) specifically exclude drydockings which exceeded 21 days?

…

77.

For our part we did not consider that any great assistance could be derived in construing the terms of Clause 59 from looking at the context in which the phrase “in accordance with” had been used in other contexts in this charterparty. We have already referred to the fact that although we were advised that the charterparty had been drafted by lawyers, it contained a number of regrettable ambiguities and we were not prepared to assume strict consistency in the use of any particular word or phrase. Clause 3(a) does not deal with off-hire or the unavailability of the vessel for service, so that it was difficult so far as we were concerned to make any assumptions that Clause 3(a) had the effect of imposing major qualifications on the right to substitute under Clause 59.

78.

Although the Charterers argued that any reliance by the Owners on the underlying purpose of a substitution clause in a long term charter was “barely sustainable as an argument” in the light of Clause 22, we could not agree. The argument was that since Clause 22 was specifically premised upon non-continuous performance (since it provided for periodical drydockings) one could not assume that any charterparty provision dealing with substitution had to be viewed in the context of the need to maintain continuous performance of the chartered service.

79.

Although this was a charterparty for a particular vessel, our own view was that the clear objective was to provide a certain tonnage - either by that particular vessel or suitable substitute vessels. Given the ‘take it or pay’ nature of the Charterers’ contract with Qatargas, we agreed with Counsel for the Owners that the Charterers’ principal concern under the charterparty had to be taken to be ensuring that tonnage was available to meet cargo offered by Qatargas and the demand in the markets into which the Owners were selling. The fact that Clause 22 assumed a ‘measure’ of non-continuous performance did not seem to us to undermine the obvious commercial purpose of the charterparty, namely uninterrupted availability of tonnage to service the carriage of cargoes purchased by Charterers from any of the Primary Terminals and the demands of the markets into which those cargoes were sold.

…

As to charterers’ second ground, the reasons at paragraphs 82 to 86 rejected charterers’ criticisms of Dr Odedra’s evidence on behalf of owners and found that there was no sufficient factual basis for charterers’ complaint that owners had failed to give the “earliest possible advance notice” of the substitution. It added at paragraphs 89 to 90 that the obligation in question was not a condition precedent to reliance upon clause 59, and at paragraphs 91 to 92 that had there been a breach no damages would have been awarded – for even if earlier notice had been given charterers would still have had to pay hire for KHANNUR without having any alternative employment for her.

Turning to charterers’ third ground, the reasons at paragraphs 93 to 94 summarised charterers’ arguments. At paragraphs 95 to 97 they discussed a contention by owners in answer – a contention to the effect that paragraphs (c) and (d) of clause 59 were not of general application:

95.

The Owners’ answer … was that the provisions of Clause 59(c) and (d) were irrelevant and that reliance on Clause 59(d) was misplaced because Clause 59(c) (and therefore Clause 59(d)) was concerned solely with a situation where the substitution was made at the Charterers’ request. Furthermore, the Owners submitted that in Clause 59(c) the parties had specifically directed their minds to what they meant by the “Substitute Vessel” and that since the “KHANNUR” was the subject of the original charterparty she could not be “Substitute Vessel” as defined in Clause 59(c).

96.

We found this construction of Clauses 59(c) and (d) unappealing. We agreed with the Charterers that it was far more attractive to read Clause 59(d) as applying to the whole of Clause 59. To do otherwise would be to attach to the fact that the draftsman had used a capital “S” an importance which we did not believe that it could objectively bear.

97.

We therefore concluded in principle that the requirements of Clause 59 as they applied to the “Substitute Vessel” applied to whichever vessel was being substituted at the particular time.

The reasons at paragraph 98 onwards then continued:

98.

The question of whether – had it been necessary for us to do so – we would have concluded that the Owners were not entitled to rely on Clause 59 as justifying the substitution because of a breach of this obligation with regard to the condition of the substitute vessel, was perhaps the most difficult issue with which we had to grapple in this arbitration. We agreed with the Charterers that there was no “change of law” under Clause 3(e)(iii) on which the Owners could have relied (had it been necessary for them to do so) as justifying any breach which there might have been with regard to the acceptability of the vessel, since it seemed to be clear that all that had changed at Ras Laffan was a change in the approach adopted to vetting and not a change of the regulations themselves.

99.

If the requirements with regard to the suitability of the substitute vessel meant anything, then it struck us that the Owners were in considerable difficulty in arguing that the “KHANNUR” complied with these requirements. As Mr Zickermann accepted, the assessment of BSM was “appalling” and to have done anything about it would have required a serious amount of time before the vessel was due to present for loading at Ras Laffan. The Charterers relied in this respect on the fact that Mr Rossing accepted that if Golar had known in December 2006 that the “KHANNUR” would be going to Ras Laffan in July 2007, he would have considered it necessary to investigate her acceptability to Qatargas “more or less immediately”. It was difficult to disagree with the Charterers that the Owners (or, Golar on their behalf) had simply assumed what should have been checked. It was submitted on behalf of the Charterers that this amounted to a clear failure to exercise due diligence under Clause 3(a). (We shall refer further to this aspect of the Charterers’ due diligence case in the context of the way in which this case was expanded at the hearing.)

100.

The Owners’ answer to this - commercially compelling - case was a legal one. They submitted that even if the reference to “in the same state of readiness” in Clause 59(d) was “re-written” (as they saw it) so as to read “in every way fit for the service” (as provided for in Clause 1(c)) this could not assist the Charterers for various reasons. The first of these was that the requirements of Clause 1(c) only applied as at the date of delivery of the vessel into service under the charter and since the “KHANNUR” had performed without complaint for several years, there was clearly no breach of that requirement.

101.

The second was, so they submitted, that the requirements of Clause 1(c) were confined to the physical state of the vessel and could not apply to the standing of her managers. Decisions such as that in The “Derby” [1984] 1 Lloyds Rep 635 and The “Elli” [2008] 2 Lloyds Rep 119 make it clear that such words must be construed strictly and have limited effect. Furthermore, Clause 2(a)(v) deals specifically with the Owners’ obligations so far as the management of the vessel is concerned and Clause 3(a) deals specifically with the ISM Code. It was therefore unlikely, so they maintained, that the parties could have intended that the words relied upon by the Charterers could bear the meaning which they sought to put on them.

102.

This narrow interpretation was, the Owners argued, supported by the fact that Clause 4(d) provided that the Owners warranted “the ability of the vessel to comply as at the commencement of this Charter with all requirements, physical or otherwise, of the Primary Terminals …”. If Clauses 1 and 2 had indeed been intended to have such an extensive effect as that for which the Charterers contended, the Owners submitted that this part of Clause 4(d) would have been totally unnecessary. It was, so the Owners argued, clear that the intention of the parties was that they, (the Owners) were warranting the ability of the “KHANNUR” to meet the non-physical requirements at the commencement of the charter, but, by implication, they were obviously not doing so for the whole of the ten year period of the charter.

103.

Once again, since the importance of compliance with the requirements of loading and discharging at terminals is of such vital importance in this particular trade, we had to assume that an organisation with such experience in this particular field as the Charterers would have attempted to provide specifically for their requirements in this respect. The parties might, as the Owners pointed out, have included in the charterparty specific clauses relating to vetting (such as the Oil Major Approval clauses which are now invariably to be found in tanker charterparties). But this charterparty contained no such specific requirements.

104.

Notwithstanding the commercially compelling reasons for concluding that the parties must surely have intended that any substitute vessel would meet the requirements of the Ras Laffan Port Authority, we accepted that on a true construction of the relevant provisions the Charterers were unable to make good their submission that the Owners had warranted that the “KHANNUR” would be acceptable at Ras Laffan when substituted. Had it been necessary for us to do so, we would therefore have rejected the Charterers’ case that the Owners were not entitled to rely on Clause 59 as justifying the substitution of the “KHANNUR” because she was an invalid substitute vessel.

The reasons then went on to describe and reject a late contention by charterers that an obligation to exercise due diligence prior to substitution arose and had been broken.

What I have called sub-issue B1 was dealt with in the reasons in a passage which dealt also with sub-issue B2. Observations in the reasons relevant to sub-issue B1 include the following:

111.

Even if the Owners had the right to substitute the “GIMI”, the Charterers argued that having that right did not necessarily mean that it had been correctly exercised. They pointed to the fact that the Owners had committed themselves to delivering the “KHANNUR” “at Barcelona” (which was where the “GIMI” went off-hire) and yet had failed to do so. Whilst their reason for not doing so might have made practical and commercial sense, the Charterers submitted that they were unjustified in law. The fact that the Owners might have been prepared to give a credit for the extra distance of 329 nautical miles to Ras Laffan was neither here nor there. If the Charterers were correct in arguing that the “KHANNUR” had never been validly delivered, then it followed, so they argued, that their own entitlement (and, indeed, duty) to give orders to the vessel had never crystallised.

…

114.

As we have already noted, the vessel waited at Algeciras for orders before being ordered by the Owners to proceed towards Suez (and then to divert to Malta). … In the absence of any orders from the Charterers, the Owners submitted that Clause 59(d) could have no application. If no orders had been given, there could be no question of the vessel being in breach of the duty of utmost despatch: the vessel would simply remain on hire pending instructions from the Charterers.

115.

In the alternative the Owners argued that they were entitled to damages for the Charterers’ breach in failing to give orders. These would represent the hire that would have been earned had orders been given. If and insofar as the relevant part of Clause 59(d) applied to this situation, they accepted that they would have to give credit for the period of time that it would have taken the “KHANNUR” to arrive at the same position in relation to the next loading port as the “GIMI” was in when she went off-hire.

116.

The Charterers accepted that their argument in relation to the alleged failure to take delivery of the “KHANNUR” in accordance with the terms of the charter was ‘red in tooth and claw’ but they argued (as indeed they did throughout their submissions) that the Owners’ position overall in this arbitration was unmeritorious because they were insisting on their rights without reference to their obligations.

117.

Putting ourselves in the position of objective bystanders we considered that it was our task to determine what the intention of the parties must be taken to have been from the relevant terms of the charterparty. From that standpoint, it seemed to us that there could be little doubt that experienced commercial concerns such as these would not have intended the terms of their agreement to be interpreted so as to require that in the case of a substitution delivery of the substitute vessel could only be made at the very same point geographically as the substituted vessel had been when withdrawn from service.

118.

The Owners’ answer to the point that the vessel to be substituted had to be in the same geographical position as that coming off hire was that Clause 59(d) was irrelevant for the reasons given above, namely, that it only applied to the “Substitute Vessel” and the “KHANNUR” was not properly described as such. We have already rejected that argument (for the reasons stated previously) and we accepted that Clause 59(d) had some relevance to this issue. Nevertheless, on a true construction it seemed to us that provided the substitute vessel was in all other respects in a position to provide the charter service, Clause 59(d) should be interpreted simply as a ‘formula’ to be applied in order to carry out the necessary accounting exercise so as to ensure that the Charterers were not financially disadvantaged by a substitution.

119.

The fact that the “KHANNUR” was not ordered to Barcelona was not therefore in our view a fatal objection to her delivery into service as a substitute vessel and it followed that the Charterers were under an obligation to give orders when she was tendered for delivery on 5^th June.

120.

… In the absence of any voyage orders from the Charterers we concluded that the “KHANNUR” did indeed remain on hire – as the Owners contended – up to 14^th July.

As noted earlier, what I have called sub-issue B2 was dealt with in the reasons in the same passage as dealt with sub-issue B1. Observations in the reasons relevant to sub-issue B2 include the following:

…

112.

… the Charterers maintained that they had in fact given orders to the vessel on 26^th June when they ‘re-stated’ that the vessel which the Owners were obliged to provide had to be in a position to load at Ras Laffan by 10^th July – whatever that vessel might be. It was, they suggested, irrelevant so far as the Owners’ obligations were concerned that they themselves had been telling the Owners that the “KHANNUR” was unacceptable to the Ras Laffan Port Authority. If the Owners wished to exercise their right of substitution, they were bound to take the “KHANNUR” with all due despatch to Ras Laffan. If the vessel was on hire, then she had to transit Suez and the Owners would recover the expenses involved in doing so. If she actually got to Ras Laffan and could not load, then the Charterers accepted that this would become their problem – provided she was on hire. But what they maintained the Owners were not permitted to do was equivocate and then commit a breach of contract by ordering the vessel to Malta

…

114.

… Dr Odedra’s evidence was that the message of 26^th June referred to above was a request to provide a vessel at Ras Laffan by 10^th July and not an order to the vessel: the Charterers were not providing voyage instructions but simply telling her as the chartering manager that they expected a ship at Ras Laffan at the relevant date. She referred to the fact that it was the Charterers who would be responsible for scheduling and paying for the vessel’s transit of the Suez Canal and that given the advice which the Owners had received from both the Charterers and Golar that the ship was not acceptable at Ras Laffan, she saw no justification for sending the ship any further in the direction of Ras Laffan. …

…

120.

We had to agree with Dr Odedra that the message of 26^th June from Mr Zickermann could not be viewed as an order to the vessel. The correct response in our view from the Charterers when they were advised of the purported delivery would have been to make it clear that, without prejudice to their contention that the vessel had never been validly delivered, she was to proceed either to Ras Laffan or to another loadport. It must be emphasised that Ras Laffan was not the only possible loadport. Simply because it was highly unlikely that the “KHANNUR” would have been accepted for loading at Ras Laffan, that could not excuse a failure to give orders. In the absence of any voyage orders from the Charterers we concluded that the “KHANNUR” did indeed remain on hire – as the Owners contended – up to 14^th July.

Both charterers and owners raised procedural points. Procedural points raised by charterers principally concerned various fallback arguments for owners which had not been relied upon by the arbitrators in reaching their conclusions. Procedural points raised by owners asserted, among other things, that the framing of the questions ignored the structure of the award and the parties’ agreement as to issues which would be determinative.

As will be seen below, the conclusions which I have reached on the substantive arguments make it unnecessary to determine procedural points. I consider it undesirable to seek to resolve these points when it is not necessary to do so. Accordingly in what follows I mention the procedural points only in outline, and I do not comment on their merits.

Extensive arguments on this question in owners’ skeleton argument were refined by Mr Timothy Young QC in oral submissions. Subject to the exception in cl 59(d), an incoming vessel must be at the place where the outgoing vessel was. Cl 59(d) did not arise in this case because there was no next loading port. It could not be right that charterers had to pay hire and bunkers to get the vessel repositioned – that might involve a journey half way round the world. The commercial agreement between the parties was that if there were a next loading port cl 59(d) would come into play permitting delivery at an equivalent position, but otherwise delivery must be at the location of withdrawal so as to avoid the consequence of having to pay for hire and bunkers for a journey half way round the world. Such a consequence would be absurd. It was also inconsistent with the emphasis which the reasons had placed (in what was said on sub-issue A2) on the purpose of cl 59 being to maintain continuous performance.

Thus charterers said that they had no quarrel with paragraph 117 of the reasons. Charterers accepted that experienced commercial concerns such as these would not have intended the terms of their agreement to be interpreted so as to require that delivery of the substitute vessel could only be made at the very same point geographically as the substituted vessel had been when withdrawn from service. What the parties had agreed was in clause 59(d), namely, that if the next loading port had been identified then, provided the substitute vessel was in the same state of readiness that the substituted vessel would have been in, delivery of the substitute vessel occurred when she was the same geographical distance away from that loading port as the substituted vessel. This was not a “formula” – and where the parties wished to adopt a formula they had done so, as in clause 22(c). Clause 59(d) did not arise in this case until a loading port had been identified, and until then the default position was that the substitute vessel could only be delivered at the place where the substituted vessel had been withdrawn. Accordingly the obligation to pay hire for KHANNUR only arose when load port instructions for Ras Laffan had been given and she had reached a position where she was no farther from Suez than the GIMI would have been on leaving drydock at Barcelona. Charterers accepted that once KHANNUR reached that position by travelling 329 miles from Algeciras towards Suez it would, subject to her being off-hire for deviation, be their obligation to pay for hire and bunkers.

In their skeleton argument for owners Mr Joe Smouha QC and Mr Robert Thomas contended that the only (potentially) relevant question of law under this head concerned the proper construction of clause 59(d) of the charter. It was commercially absurd to assert that the vessel could only be substituted at the place where the previously chartered vessel went off-hire. Question 1 did not explain what was meant by “equivalent position”, and omitted any reference to the next loading port. It also wrongly assumed that Algeciras was further away from the next loading port than Barcelona, when as at the date of the substitution (ie 5^th June) there were no orders as to the next loadport. If charterers were right, they could simply avoid the substitute vessel coming on hire, either at all or until a time of their choosing, by failing to give or delaying in giving any orders as to which was to be the next loadport. Against that background the arbitrators rightly concluded that cl 59(d) was no more than a formula to ensure that charterers were not financially disadvantaged by the substitution.

Moreover if question 1 did arise then owners’ answer would be, “Under a charterparty with a provision in the terms of clause 59(d) a vessel which has been validly substituted by the owners into the charter enters service on that substitution or, if the next loading port has been nominated, when the vessel is in the same position in relation to the next loading port that the outgoing vessel was or would have been in.” Alternatively charterers had an obligation to give such orders, were in breach of the same and owners were entitled to damages in an amount equivalent to the hire that would have been payable.

Further and in any event, clause 59(d) did not apply in this case:

In oral submissions on behalf of owners Mr Smouha raised procedural points as mentioned earlier. He submitted that question 1 was not a question which the arbitrators had been asked to determine. “Delivery” of a substitute vessel was not a concept found in the charter, and if it were it was resolved against charterers by the arbitrators’ unchallenged findings on issue A holding that the vessel had come on hire on 5 June 2007 subject only to clause 59(d).

Mr Smouha then turned to what the arbitrators had said about clause 59(d). He submitted that clause 22 was the kind of the formula that the arbitrators were referring to in what they said about clause 59(d). Express words in clause 22 said that in the absence of loading port instructions from charterers the vessel went on hire forthwith upon leaving drydock. Such words were not needed in clause 59(d), which was only concerned with the position once loading port instructions had been given, and the only issue was whether the charterers could get any credit against hire for the vessel being out of position. There was no good reason for KHANNUR to go to Barcelona in the absence of orders from charterers to do so.

I asked about the last words of declaration (2), which suggested that the arbitrators thought that a positioning adjustment might arise in favour of the charterers in this case. Mr Smouha replied that it may be that having only addressed matters of principle the arbitrators were allowing for possibilities they did not know about. It was not appropriate for the court to deal with it. This was a partial final award, and the court could not go into matters which were yet to be determined.

In reply on behalf of owners Mr Young submitted on the procedural point that the court was simply concerned to apply s 69 of the Arbitration Act 1996. It was not open to charterers to argue that requirements for permission were not met. Thus the court when considering the appeal should not entertain submissions that the issue would not substantially affect the rights of the parties, or that the question was one which the tribunal was not asked to determine. Moreover the court should not entertain the alternative arguments which owners now sought to raise, for there had been a failure to lodge a respondent’s notice.

As to the contention that the findings on issue A precluded charterers’ complaint under question 1, the reasons explained that “positioning issues” were dealt with as part of issue B. The original delivery could have been a substitute, and it would be odd if that had a geographical component but later delivery did not. Similarly under the 2004 agreement there had been a geographical element – GIMI came on hire at a position no further from Suez than Barcelona. The default position that the substitute vessel must be delivered at the place of withdrawal of the substituted vessel ensured seamless provision. Mr Young acknowledged that if the court were to hold that the arbitrators had misunderstood cl 59(d) then the award might need to be remitted to them to reconsider whether in those circumstances clause 59(d) was of general application.

At the close of oral submissions Mr Smouha urged that if the court concluded that the arbitrators did not deal with a question then the court should simply record that fact. Remission would only arise if the court could not work out the effect of its conclusions on the award. A respondent could say that an award should be upheld for reasons not expressed in the award. If there had been any procedural failing owners asked that the relevant requirement be dispensed with under CPR 3, for there had been no prejudice to owners.

If there is an entitlement to substitute, but charterers have not at the time of substitution given orders identifying the next loading port, where may the substitute vessel be made available to the charterers so that obligations to pay for hire and bunkers will begin? The reader will search in vain for any express provision in this regard in the 2004 agreement, clause 59(d), or any other part of the charter.

Charterers acknowledge that clause 59(d) does not make exclusive provision as to where the substitute vessel must be before she enters into service. It is confined to a case where the next loading port has been identified. If the next loading port has not been identified then charterers say the default position is that the substitute vessel must be at the location where the substituted vessel was withdrawn.

In support of their contentions charterers said that nothing expressly permitted KHANNUR to be made available at Algeciras. The flip side of that coin is that nothing expressly required her to be made available at Barcelona. Where, as here, at the time of substitution no orders had been given identifying a loading port, the arbitrators held that the substitute vessel can be made available to the charterers elsewhere than at the location where the substituted vessel was withdrawn. The essential point arising under question 1 is whether they were right.

Charterers’ assertions on question 1 placed great stress on a contention that the arbitrators had arrived at an absurd result. The commercial agreement between the parties was that if there were a next loading port cl 59(d) would come into play permitting delivery at an equivalent position, but otherwise – they said – delivery of the substituted vessel must be the location of withdrawal of the substituted vessel so as to avoid the absurd consequence of having to pay for hire and bunkers for a journey half way round the world.

The arbitrators answered this contention in paragraph 117 of the reasons. Their answer was in my view obvious: a requirement that the substitute vessel be positioned in the place where the substituted vessel was withdrawn could well lead to a pointless waste of time, effort and money. As the arbitrators said in paragraph 117 of the reasons, commercial parties would not have intended their agreement to have been interpreted in a way which required this. I agree. Once the arbitrators had held, as they did, that the 2004 agreement brought clause 59(d) into play, then there was a contractual mechanism to safeguard against the absurd consequence from which charterers seek protection. If prior to the substitution charterers identify the next loading port then clause 59(d) would, as they accept, protect them, for it has the consequence that the vessel will not “enter into service under this charter” until she is “in the same position in relation to the next loading port … that the Vessel was or would have been in.” If prior to the substitution charterers have not identified the next loading port, then there is at that stage no basis for saying that charterers will have to pay hire and bunkers for a journey half way round the world. The next loading port has yet to be determined and so there is no certainty that any difference in position of the substitute and substituted vessels will adversely affect charterers. Substitution can only sensibly take place at a stage when the cargo has been discharged, and by that time charterers ought in the normal course to have given orders identifying the next loading port. If there were to be a risk of an “absurd consequence” it would arise only by virtue of their own default. And, as indicated earlier, it is a risk which may or not materialise. Mr Young suggested that charterers might be prejudiced by short notice of substitution, but it is difficult to see why short notice of the substitution should affect charterers’ ability to give orders for the next loading port, something which charterers needed to do whether they had notice of a substitution or not. Moreover the arbitrators have held in the present case that clause 59(b) applied and required owners to give “the earliest possible advance notice of their intention to provide a substitute vessel.”

On question 2 charterers asserted that if KHANNUR did not “enter into service under the charter”, then charterers did not in law fall under any obligation to give orders. This was not altered where there was a dispute about whether delivery has been effected: either the vessel was lawfully delivered, in which case there was an obligation to give orders; or she was not lawfully delivered, in which case there was no obligation to give orders. Charterers accused the arbitrators of having adopted an unlawful hybrid view that where there is a contentious delivery, charterers fall under an immediate obligation to give “without prejudice” orders.

On question 3 charterers acknowledged that there was plainly a point at which, once KHANNUR sailed from Algeciras, she was no further from Ras Laffan than was Barcelona - this was on about 25June 2007. On 26 June 2007 charterers re-stated that the vessel which owners were obliged to provide under the charter must be in a position to load at Ras Laffan by 10 July 2007 - whatever that vessel might be (see paragraph 122 of the reasons quoted above). It is not possible in law to see how a statement to owners that the chartered vessel must be in a position to load at Ras Laffan by 10 July 2007 can be anything other than an order to the chartered vessel: it is expressed in imperative terms stating where the chartered vessel is to go to (“Ras Laffan”) and when the chartered vessel must be ready to load (“10 July 2007”). There was no material part of a relevant “order” missing. An order by charterers that the ship is to proceed to or remain at a certain port has been authoritatively held to be an “order” as to employment: Larrinaga v The Crown (1947) 78 Ll.L.Rep.167. Likewise an order as to the route to be followed by a chartered ship is an “order” as to employment (Whistler International Ltd v Kawasaki Kisen Kaisha (The Hill Harmony) [2001] 1 A.C. 638). The only thing charterers did not do was concede that KHANNUR was the chartered vessel, but the arbitrators said that such an order could be sent “without prejudice” and it is not clear what distinction they saw from the present case other than the absence of the words “without prejudice”. The arbitrators’ conclusion that this was not a relevant “order” was internally inconsistent and unsustainable in law. Paragraph 120 of the reasons was described by Mr Young as “a complete dislocation.” If the court were in doubt whether paragraph 112 said what charterers submitted it said, then it might be necessary to remit.

Owners noted on question 2 that charterers’ complaint appeared to be that paragraph 120 of the reasons made a finding that charterers were under a legal obligation to give orders “without prejudice” when they dispute that the vessel is lawfully substituted. This was misconceived: the wording used in this part of paragraph 120 was properly read as a simple expression of a view that the commercially appropriate response for Charterers would have been that suggested.

Question 3 was, said owners, “dressed up as a question of law.” In reality it was an attack on the finding of fact (or at best a finding of mixed fact and law) made in the opening sentence of paragraph 120 that charterers’ message of 26^th June 2007 could not properly be viewed as an order to the vessel. This was an argument that only surfaced during cross-examination and was the subject of no more than brief mention by charterers in closing. In fact, the finding with regard to the message of 26^th June 2007 was one which the Tribunal made on the basis of its review of all the evidence - both in terms of the relevant documents which put the message of 26^th June in context and the evidence of the witnesses. This was illustrated by paragraph 114 of the Award and the arbitrators’ concurrence in paragraph 120 with the views of Dr Odedra, expressed when she was cross-examined about this message. As such, the arbitrators were doing precisely that job which they were uniquely well-placed to do – namely exercising their judgment in assessing the facts of the case in light of all the evidence and their own experience and understanding of the trade. Conversely, it is a task which the court is unable to undertake both because of the limits on the proper scope of an arbitration appeal and also as a matter of practicality. A proper appreciation of the answer would require (at the very least) a full review of the relevant evidence. That evidence was not before the court. Nor, said owners, did the questions in respect of which permission to appeal has been granted address the question whether the 26^th June email was an order to KHANNUR to proceed to Ras Laffan and load.

I agree with owners that the charterers’ contentions on questions 2 and 3 are unsound. These contentions are concerned solely with issue B2. It is not disputed that the issue only arose during cross-examination of Dr Odedra and was the subject of no more than brief mention by charterers in closing. It is no surprise that in these circumstances the arbitrators compressed their reasoning on the issue so that it formed part of a single paragraph.

The arbitrators’ basic point was that they agreed with Dr Odedra that the message in question was not an order to the vessel (my italics). Technically this involved a finding of mixed fact and law, but the balance tilted overwhelmingly towards fact rather than law. Despite charterers’ criticisms I see no reason why this should not have been the first sentence of paragraph 120. The issue had been raised by charterers in an informal way and had been given only brief treatment by them in their closing submissions. It was, as I have said an overwhelmingly factual issue. The arbitrators did not set out their understanding of legal principles governing whether or not something was “an order” to “the vessel”. In the circumstances I have described it was not necessary for them to do so. Nor was it necessary for them to set out a detailed account of the factual context. The point had only arisen in the course of cross-examination of Dr Odedra. I consider that the arbitrators were entitled to proceed on the basis that the parties were fully aware of the factual context as described by and put to Dr Odedra in her evidence.

As to the second sentence of paragraph 120, this must be read in the context that the first sentence is essentially a finding of fact. Once it so read it is in my view obvious that the arbitrators are, as owners submitted, doing no more than explaining to charterers what charterers could have done to make their position clear. That conclusion disposes of owners’ arguments on question 2.

Question 3 then boils down to whether on the material in the award it is possible to identify an error of law underlying the arbitrators factual conclusion. Paragraph 112 of the reasons, using indirect speech, summarised the message in question as re-stating that the vessel which the Owners were obliged to provide had to be in a position to load at Ras Laffan by 10th July – whatever that vessel may be. We are here in entirely different territory from the cases cited by charterers which raised difficult legal questions of characterisation in the context of particular charterparty terms. It is quite impossible for me to conclude from the summary in paragraph 112 that the conclusion in paragraph 120 involved an error of law. I do not consider that there is any likelihood that it did, or any other good reason for requiring the arbitrators to make further findings in this regard.

It follows from my analysis above that charterers’ appeal on questions 2 and 3 fails on the merits. Here too it is unnecessary to address procedural questions and I consider it undesirable to seek to do so.

For the reasons I have given on each of the questions charterers are unsuccessful in their appeal.